2 Winners, 2 Losers of the Midterm Elections

After months of relentless campaigning, voters took to the polls to cast their choices for which candidates – and ultimately which party – would control Congress. For Democrats, the election cycle has been a tumultuous one fraught with risk. Because of skyrocketing inflation and rising fears of a global recession, many on the left felt that a red wave would materialize.

On the other end, Republicans generally felt optimistic about their chances. Typically, no better catalyst for political change exists than economic turmoil. Again, with consumer costs soaring to historic highs, those on the right offered a simple message for voters: the Biden administration is woefully incapable of addressing the real needs of the hardworking American family. Therefore, it’s time to vote the Democrats out.

In addition, historical trends suggest that the party in power may suffer losses in the midterms, adding even more concern to the incumbent Democrats. Combined with the sticker shock of blisteringly high gasoline prices along with pain in the grocery aisles, Republicans had every reason to believe both precedent and public sentiment were on their side.

However, as of the wee hours of Nov. 9, control of Congress still hangs in the balance. What’s more, Democrats managed to flip a critical Senate seat in Pennsylvania, meaning that the much-hyped red wave failed to gain significant momentum. Instead, the right managed to spark a ripple, with a slim majority in the House of Representatives being the likely consolation prize.

While anything can happen as several races are too close to call at the moment, below are potentially two winners and two losers of the midterm elections of 2022.

Winner: Ukrainian Resistance

If a clear geopolitical winner exists in this midterm race, it may well be Ukraine’s efforts to remove Russian invaders from its territory. Although the embattled nation sparked remarkable counteroffensives, liberating large swathes of territory, questions about how long the U.S. would continue to support Ukraine lingered in the air. With other major economic concerns on the horizon, American taxpayers risk losing interest and compassion for eastern Europe’s fight for freedom.

More than likely, a red wave would have slowed support for Ukrainian resistance fighters or at least brought the funding process under greater scrutiny. In addition, Americans generally don’t want to be dragged into another lengthy and bloody conflict given the decades-long war on terror. The fiscally conservative Republicans could then realistically stymie Ukraine’s otherwise significant progress.

However, given the tight battles for control of Congress, it’s apparent that the isolationist arm of the Republican party lacks the numbers necessary to restrict support for Ukraine. Therefore, one of the market beneficiaries of the midterms could be defense stocks such as Raytheon Technologies (RTX).

Winner: Firearms Manufacturers

Closer to home, the issue of the Second Amendment represented one of the most hotly debated topics in the political and social realms. With horrifically tragic gun violence events erupting over the years – many of them involving children – even the most ardent supporters of firearms rights were forced to extend some latitude for reasonable policies.

Now, had the Republicans dominated the midterm elections, firearms manufacturers like Smith & Wesson Brands (SWBI) may have counterintuitively courted fiscal headwinds. True, Republicans almost always support gun rights and oppose restrictive gun control measures. However, having conservatives in power tends to lull people into complacency.

On the flipside, when Democrats gain control of government, the dynamic tends to scare people into purchasing firearms. After all, gun sales skyrocketed under the Obama administration due to fears that Democrats’ gun control measures might forever restrict access to certain types of weapons. But because the most recent midterms suggest no party represents a dominant force, there may be enough fear to mitigate complacency.

Loser: Construction Industry

Throughout the campaign cycle, one of the Republicans’ battle cries focused on the existence of “other” problems to address. For instance, supporting Ukraine should take a lower priority over protecting U.S. citizens via securing America’s southern border. Indeed, through former President Donald Trump’s campaigning ahead of the 2016 presidential election, border security represented a top priority.

However, with the Democrats’ surprisingly strong showing at the midterms, the issue of the southern border may not be the go-to catalyst that Republicans think it is. Therefore, it’s possible that companies like Caterpillar (CAT) may start feeling downside pressure over the next several months.

To be fair, CAT stock specifically performed very well so far this year, gaining 11% on a year-to-date basis. Initiatives to boost infrastructure in the U.S. certainly helps the fundamental case for Caterpillar and its ilk. Still, the “build the wall” theme that earlier boosted CAT may have lost much of its luster.

Loser: Big Oil

When Russia invaded Ukraine, subsequently sparking a global energy crisis, the military action put several world leaders in an awkward position, including President Joe Biden. After championing clean and renewable energy investments, Biden was forced to recognize the incredible pertinence of hydrocarbons.

In fact, earlier this year, the president found himself attempting to negotiate with Saudi Arabia in the hopes of sparking additional production to help cool oil prices. However, this decision was met with intense criticism, primarily due to Saudi Arabia’s poor record on human rights. Even more embarrassing, OPEC+ later decided to cut production, not increase it.

Not surprisingly, big oil firms courted Republicans given that their position aligned with pro-domestic hydrocarbon production policies. But because conservatives failed to dominate the midterms as they hoped, companies like Exxon Mobil (XOM) may face long-term scrutiny once the crisis in Ukraine comes to an end.

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